Corporate Finance
60 Corporate Finance Measuring Return Suppose an investor purchased 100 shares of XYZ Industries at the rate of Rs 120 each, r ...
Risk and Return 61 In the given example, the investor had a 3-year horizon. The holding period could be in months as well, say ...
62 Corporate Finance MEASURING RISK Investors buy shares in anticipation of a particular return but the fluctuation in stock p ...
Risk and Return 63 One good thing about normal distribution is that it can be described with only two parameters—mean and stan ...
64 Corporate Finance between the mean monthly return and standard deviation as would be suggested by the risk premium hypothes ...
Risk and Return 65 But the risk of the portfolio is not the sum of individual variances. It would be smaller than that of hold ...
66 Corporate Finance Situation 2 ρ 12 is –1 σp^2 = 116.64 + 116.64 – 233.28 = 0 Yes! The portfolio variance is 0. But it is un ...
Risk and Return 67 An Illustration Exhibit 3.8 presents the average portfolio (weekly) return and standard deviation for vario ...
68 Corporate Finance diversification diminish beyond a certain limit. Most textbooks conclude that 10–12 stocks are adequate t ...
Risk and Return 69 RISK AND RETURN: THE INTERNATIONAL EVIDENCE Financial markets around the world can be broadly classified as ...
70 Corporate Finance Exhibit 3.11 Global correlations US/UK 0.67 Canada/Switzerland 0.59 Japan/Germany 0.34 Italy/France 0.69 ...
Risk and Return 71 securities). So the investor can take any position on the line Rf – M (Exhibit 3.13). Note that the line is ...
72 Corporate Finance Deriving the Capital Market Line The expected return of a portfolio consisting of the risk-free asset and ...
Risk and Return 73 Company Beta Bajaj Auto 0.47 BHEL 1.28 Castrol 0.64 Cipla 0.64 Rj= Rf + Risk premium Rj= Rf + β[E(RM – Rf)] ...
74 Corporate Finance DO INDIVIDUAL INVESTORS HOLD DIVERSIFIED PORTFOLIOS? Studies conducted in America indicate that a typical ...
Risk and Return 75 Some countries have low and some countries have negative risk premium. What factors affect risk premium? Wh ...
76 Corporate Finance R – Rf = γ 0 + γ 1 β + ∈ In this regression, R represents the returns of many securities at a particular ...
Risk and Return 77 The Fama–French Three Factor Model is estimated by running a time series multiple regression for each compa ...
78 Corporate Finance The same is true of many other countries. Emerging market returns are not only higher than returns from d ...
Risk and Return 79 average returns from these portfolios to be the same due to their differential sensitivity to macroeconomic ...
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